Fighting money laundering, terror finance


By John A. Cassara - Contributing Columnist



When I was a small boy, I loved the Danish fairy tale by Hans Christian Andersen “The Emperor Wears No Clothes.”

Unfortunately, the metaphor could well be used to describe our current efforts to combat international money laundering. The overwhelming majority of knowledgeable observers are unwilling to see what is obvious: our anti-money laundering efforts here and abroad are just a percentage point away from being a total failure.

But, this is not a fairy tale. The worldwide failure to successfully combat money laundering has a dramatic impact. Why? Because outside of crimes of passion — for example, murder committed in a jealous rage—criminals, kleptocrats, and some unscrupulous corporations are motivated by greed. In today’s increasingly interconnected world, the manifestations of unfettered avarice impact all of us — politically, socially, economically, and culturally. We see it in our communities. The opioid, meth, and cocaine epidemics are devastating. Human trafficking, widespread fraud in government programs, corruption, a plethora of internet scams, identity theft, etc. can affect our daily lives. Of course, money laundering and its corollary, terror finance, also impact national and international security.

Sometimes law enforcement, policymakers, and the media get so distracted with the immediacy of the criminal behavior that they forget the aim of criminal activity is not the crime itself but the proceeds of the crime. Just about everybody agrees that the “War on Drugs” failed. But we do not acknowledge that our inability to stop the laundering and seize the criminal proceeds fuels the greed behind the global drug trade.

How much money is being laundered? The estimates are all over the map, but the bottom line is: it’s a lot. The International Monetary Fund has estimated that money laundering comprises approximately two to five percent of the world’s gross domestic product or approximately the size of the U.S. federal budget! Similarly, the United Nations Office on Drugs and Crime (UNODC) conducted a study to determine the magnitude of illicit funds. According to the UNODC, in 2009, criminal proceeds amounted to 3.6 percent of global GDP. The IRS says that “money laundering is tax evasion in progress.” If tax evasion here and abroad is included in the count, the magnitude of international money laundering is staggering.

“Total failure is just a decimal point away”

How well are we doing in fighting the problem? Reliable statistics on money laundering enforcement are hard to find and sometimes dated, yet the data that do exist present a bleak picture. Simply divide the amount of money being laundered by the amount actually recovered and factor in the number of successful anti-money laundering prosecutions.

Despite periodic, positive pronouncements from the Treasury Department and various administrations, here are a few sobering numbers:

· According to the UNODC, less than one percent of global illicit financial flows are currently being seized and forfeited.

· According to Raymond Baker, a longtime authority on financial crime — using statistics provided by Treasury officials—the numbers show enforcement is successful 0.1 percent of the time and fails 99.9 percent of the time. “In other words, total failure is just a decimal point away.”

· Dated information suggests that in the United States, money launderers face a less than five percent risk of conviction (some plead to lesser charges). And, according to the U.S. State Department, buttressed by my personal observations, the situation in most areas of the world is even worse.

What can be done?

As a former Treasury special agent who investigated money laundering and terrorist finance, I have the utmost admiration and respect for law enforcement and other personnel who do work hard to follow the money and value trails—sometimes at great personal risk. Make no mistake, cases are being made. Some investigations are complex and truly innovative. But dividing the amount of money laundered by the number of successful cases here and abroad demonstrates that our current efforts are next to futile.

Since retiring from my Treasury career, I have advanced a number of “steps-forward” on how to more effectively combat money laundering in books, articles, and Congressional testimony. We should invest in trade transparency units, anti-money laundering safeguards should be engineered into virtual currencies and mobile payment systems, and we should strengthen federal anti-money laundering policies to bring them fully into alignment with global standards.

One of the most important things we must do immediately is end the incorporation of anonymous shell companies. The U.S. is one of the easiest places in the world where terrorists, human traffickers, and corrupt foreign politicians can open anonymous shell companies to launder illicit money with impunity. When investigating the most heinous crimes, it is commonplace for law enforcement to hit a dead-end when encountering a shell company.

“Anonymous shell companies, that shield beneficial ownership, are one of the primary tools used by bad guys to openly acquire and access nefarious funds,” wrote Dennis Lormel, the first chief of the FBI’s Terrorist Financing Section, in 2013. “These dubious dealings are not limited to Switzerland, Monaco and ‘offshore’ tropical islands. The United States is among the most egregious offenders with its woeful lack of regulations requiring the true ownership of companies to be identified.”

Little has changed since then.

In April, Patrick Fallon, the head of the FBI’s financial crimes section, noted “While we [in the U.S. talk] about offshore accounts in other countries, I think we have a lot of room for improvement here to promote transparency… It is a significant impediment to our investigations when we can’t determine who the true owner is of a company.”

There is bicameral, bipartisan legislation that would fix this and give our law enforcement officials the information that they need to keep us safe — putting a real dent in the ability to launder criminal and terrorist proceeds.

This month, the nation’s top banks endorsed the legislation in a letter to the bill’s sponsors to ensure that their financial institutions are not being misused to launder illicit proceeds.

In addition to backing from the banking industry, the measure enjoys widespread support from law enforcement groups like the Federal Law Enforcement Officers Association, as well as a broad array of anti-corruption, human rights, and taxpayer advocates.

Failure is hard to acknowledge and some benefit from the status quo, but the time has come to get this done.

We need to take a good strong look at our anti-money laundering efforts. Congress should begin by acting to protect the American people from the harms associated with anonymous shell companies.

Until then, we have to recognize the naked truth — “the emperor wears no clothes.”

John A. Cassara is a former U.S. Treasury Special Agent, who spent much of his career investigating money laundering and terrorist financing. His latest book is titled “Trade-Based Money Laundering: The Next Frontier in International Money Laundering Enforcement.”Please note this op-ed previously appeared in The Hill and is courtesy of American Forum.

By John A. Cassara

Contributing Columnist

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